The recovery of consumption directly matters economic development. In 2022，final consumption contributed 32.8% to the GDP，well below the average level of about 65% in previous years，being the main reason for the slowdown in economic growth. The repair of travel led to a rebound in services and contact-based service consumption in 2023，driving the growth rate of total retail sales to 3.5% in January and February. Total retail sales from March to May were also up compared to last year，this was mainly due to a lower base in 2022.

However，total retail sales were only 0.23% month-on-month in June，the lowest level for the same period. Meanwhile，CPI fell by 0.3% year-on-year in July，indicating a slowdown in consumer demand. In order to address the factors constraining recovery of consumption for stable growth，the introduction of measures to boost consumption has become the priority of stable growth goals.

Three Factors Constraining the Recovery of Consumption

First，under the pressure of business operations and structural unemployment，income growth has slowed down. Since 2022，due to the greater pressure on the operation of small and medium enterprises (SMEs) and platform enterprises (From January to June，the total profits of industrial enterprises above the designated size fell by 16.8% year-on-year.) and the continuous decline of the real estate market (From January to June 2023，real estate investment fell by 7.9% year on year)，the unemployment rate of urban residents aged 16-24 has continued to rise (even reaching 21.3% in June 2023). This has not only led to a slowdown in household income growth，but also dramatically limited consumption.

The two-year compound average per capita disposable income growth rate for residents was only 5.5% in the second quarter of 2023，down from 5.7% in the first quarter. Taking into account the seasonal cycle of youth unemployment，the July graduation season usually has the highest unemployment rate.

Second，the income gap has widened，constraining the recovery in consumption. Generally，low-income people have a higher marginal propensity to consume，and widening income disparities are not conducive to the release of consumption potential.

Since the outbreak of the COVID-19 pandemic，the income disparity between high-income and low-income groups in both urban and rural areas have widened. According to the income quintile defined by the National Bureau of Statistics of China (NBS)，the income quintile share ratio，which is calculated as the ratio of the disposable income received by top quintile to that received by bottom quintile，changed from 10.3 in 2021 to 10.5 in 2022. In 2022，the three-year compound growth rate of retail sales of gold，silver and jewelry representing luxury consumption was up to 8.1%，obviously exceeding the growth rate of retail sales of goods above the overall quota (4.6%)，which means high-income people are less affected by the pandemic.

Since 2023，the bulk consumption has been observed to be particularly weak. Specifically，retail sales in the real estate-related categories (home appliances，furniture and building materials) continued to be sluggish，and automobiles，telecommunication equipment also underperformed，which were obviously weaker than of the total retail sales.

Third，continued low consumer confidence and active deleveraging in the residential sector have limited consumption growth. Three-year fight against the COVID-19 pandemic and expected decline of employment income have led to recession of residents’ balance sheets，which is evidenced by increased willingness to save and dramatically reduced willingness to consume. Household savings surged by 17.8 trillion yuan in 2022，hitting a new high and about 8 trillion yuan more than new savings in 2021. New household savings reached about 12 trillion yuan in the first half year of 2023，much higher than that in the same period in previous years. According to the survey of the People’s Bank of China (PBOC)，24.5% of the residents preferred to "consume more," while 58% preferred to "save more."

Strengthening Fiscal Policy to Support Consumption Recovery

The stability of employment was raised to a strategic high level at the Central Economic Working Conference in December 2022 in the view of three constraints of slowing income growth，high employment pressure and low confidence.

Although ensuring people’s living standards is the key to solving the problem，it is also crucial to bring consumption back to the normal development path as soon as possible，which not only needs to strengthen consumer credit，but also needs further fiscal support. Since July，policies and measures have been enacted for the consumption of household appliances，electronics，automobiles，etc. In addition，the following aspects should be considered.

Firstly，increase central government funding to spur consumption and support local governments and platform enterprises to co-issue consumption vouchers. Policy practice in China's Hong Kong and the US suggest that post-pandemic financial subsidies for residents have increased residents’ income，and avoided damage to the balance sheets，which drove the rapid recovery of consumption. China’s auto-purchase tax reduction and exemption policies implemented in 2022 also led to a sharp rebound in automobile consumption. In 2023，there is still space for fiscal policies，especially central government funding. Meanwhile，the mechanism of consumption voucher should be clarified.

Secondly，increase government funding for rural sales and trade-in of smart appliances. China’s nation-wide rural sales and trade-in of home appliances from 2009 to 2012 suggested that increased financial subsidies (consumption voucher) empowered the rapid recovery of consumption in short term. Such a practice may also accelerate the consumption upgrading，which boost enterprise production and optimize the tax base in the long run. In July 2022，China promulgated the several policies and measures on promoting the consumption of smart appliances and cellphones，which had a positive effect in spurring home appliance consumption and accelerating consumption upgrading. In the next step，it is suggested to integrate financial support measures with policies to stimulate household appliances and electronic consumption by reference to passenger vehicle purchase tax reduction and exemption policies.

Thirdly，innovate consumption patterns and open rural markets. We will give full play to the role of platform enterprises in developing new consumption patterns，which will actively promote reverse customization，and accelerate the integrative development of online and offline consumption.

Lastly，encourage platform enterprises to support SMEs and consolidate the employment income base for the recovery of consumption. It is suggested to increase the financial and tax subsidies to help SMEs rather than directly reducing SMEs’ taxes and fees. Platform enterprises can be carriers to issue acquisition vouchers for SMEs and help SMEs out of business difficulties，thus relieving the operating pressure of enterprises and unemployment pressure of residents.

The author is the Chief Economist of JD.COM